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Commentary

Wal-Mart Sell-Off Is Buying Opportunity

Although we’re lowering our fair value estimate slightly, we think the market’s skepticism over business investments is misplaced, writes Morningstar’s Ken Perkins.

Mentioned:

We expect to lower our $79 fair value estimate for  Wal-Mart (WMT) by approximately 5%, but we believe the nearly 10% sell-off in Wal-Mart’s shares following the company’s fiscal 2017 guidance (earnings expected to be down 6%-12%) represents an overreaction and a buying opportunity in this wide-moat firm. With shares trading around 13-14 times fiscal 2017 earnings, we think that Wal-Mart shares warrant a closer look.

The sell-off and market price of Wal-Mart’s shares imply that Wal-Mart’s recent investments in e-commerce and wages will be unsuccessful in driving profits long-term. We see this scenario as a possibility, but we believe that the market underestimates wide-moat Wal-Mart’s cost advantage and its ability to compete with an omnichannel model.

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Ken Perkins does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.